The Island Now

Real Estate Watch: In the middle of a perfect storm?

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Posted: Thursday, December 1, 2016 11:02 am

The election for now is over, but interest rates dipped before the election, due to uncertainty and many put their dollars in the safe bond market, causing rates to go down.  

Now, rates have gone up a bit, with that normal fear of an increased economy and the flight to stocks as you can see that they are at an all time high of 19,000 plus.

Many people for now are feeling much better, and some are not.  

The big question is whether or not the election and/or the Electoral College votes were fixed (as Trump previously was saying, if he lost, “the system was fixed.”); even though Hillary Clinton was ahead by 2 million-plus popular votes.  

Will the Electoral College for the last 100-plus years be changed or doomed in the near future?  Stick around and we shall see.  

How will real estate be affected over the next four years?  

My thoughts are that if things continue to bode well — huge demand, 15-year low in inventory, 40-year low in interest rates and more and more millennials entering the market to purchase — I do not see an end in sight; especially since builders throughout the country are still way behind in catching up to the current and future demand, because they literally stopped construction over the last three to five years and only the last year and half have come back to play “catch up baseball.”  

Based on the demand it will take possibly 10-plus years to build the necessary housing to satisfy the current demand.    

Inventory based on Multiple Listing Service of Long Island statistics for October 2015 was 25,623 properties down to 21,721 units at the end of October 2016, a reduction of 15.2 percent (only 6.7 months of inventory!) (down 32.5 percent since 2014)   

The impact has been to increase sale prices by 8.8 percent during the same period.  

The pressure on prices goes up as inventory decreases, basic supply and demand economics.  

We are still at an historic low for interest rates as was mentioned earlier.   

However, as the rates have now increased a bit since the election, due to money moving out of the Mortgage Bond Market and back to the stock market, rates had to increase to attract more investors who demanded more value. Return on investment, therefore equaling higher rates.  

This might be eliminating some who were border line purchasers due to the increased monthly cost of their mortgage, (principle, interest and taxes, insurance: P.I.T.I.).  

Moreover, as interest rates further increase, psychology sets in with those who become afraid or those who wait and figure prices will come down, as demand cools off.   

Waiting will usually cost more because of the cost of money.  It is far smarter to buy the interest rates than to wait for the drop in prices, because the monthly cost of one’s mortgage would still be less than sitting on the sidelines for a lower price point, over the long run.  

Unless rates go up to 7-9 percent (6 percent has been the average normal interest rate in the past), ownership will still be, for the very foreseeable future more advantageous and cost effective and less expensive than renting.  

Remember being your own landlord allows you to receive all the tax deductions, appreciation  and security of growing roots within your community and raising a family without the fear of increased rents (fixed rate mortgage), the landlord not renewing your lease (you have the comfort of not being told that you have to move, eliminating the uncertainty factor).  

The increased equity for an owner over the years, is the single best leverage for increasing a family’s long term wealth and generally where most have their equity and wealth in homeownership.

I can see that our economy is surely not overheating, by any stretch of the imagination and the profitability of companies has been more in the mass layoffs and getting more work accomplished with less people.  

My wife got laid off in July, after 28 years with her company, because they wanted to save money, and most likely getting the current crew to do her graphic arts and production responsibilities, that she had been in charge of. (Any company need a fantastic graphic artist?)   

Although the initial shock was sudden and by surprise, her severance package was much more than most receive and her pension that she took with her was okay.  

But this has happened to millions over the last eight years, however, unemployment has been coming down to less than 5 percent.  

This has mainly been due to service sector jobs, which do not pay a sufficient wage to make it very feasible for those to gain the “American Dream of Ownership.”   

Even locally I have experienced a multitude of people and families, who have to take on two or three jobs to live on Long Island.   

I know and have the simple solution, as I have mentioned in an article I wrote five years ago in a blog on the internet.  

Begin rebuilding our infrastructure of roads, bridges, tunnels and high speed passenger and commercial rail in the north, south, central U.S. And west.  

These types of highly skilled positions, paying $50-100-plus per hour, will allow those to save and eventually purchase their home.  

This will obviously increase demand further, but continue to allow the construction industry to do well far into the future.  

I hope Mr. Trump will accomplish this one task in the next four years, more high paying jobs!  

Currently, the average price of a home in the U.S. as per Realtor.Com and The National Association of Realtors has gone above $250,000 (obviously not related to our local values, by any stretch of the imagination).  

I guess for me, without my wife’s income, I will have to find more sellers to sell their homes, condos, coops and commercial properties for and purchasers to do transactions with.  

Welcome to the discussion.